Q.2 (Max Marks:90)
Bombera Ltd operates at capacity and makes glass-topped diningtables and wooden chairs, which are then typically sold as sets offour chairs with one table. However, some customers purchasereplacement or extra chairs, and others buy some chairs or a tableonly, so the sales mix is not exactly 4:1. Bombera Ltd is planningits annual budget for the financial year 2018. Information for 2018follows:
Input prices Direct materials Wood $5.30 per boardmetre Glass $11.5 per sheet Direct manufacturing labour $14 perdirect manufacturing labour-hour
Input quantities per unit of output
Chairs Tables Direct materials Wood1.2 board metres 1.7 board metres Glass — 2 sheets Directmanufacturing labour 3 hours 6 hours Machine-hours (MH) 2 MH 5MH
Inventory information, direct materials
Wood Glass Beginning inventory 27 200 boardmetres 8 700 sheets Target ending inventory 29 360 board metres 9500 sheets
ACT501 Semester 2, 2018 Page 4
Sales and inventory information, finished goods
Chairs Tables Expected sales in units 172 000 45000 Selling price $70 $900 Target ending inventory in units 8 400 2050 Beginning inventory in units 7 500 2 150 Chairs are manufactured in batches of 500 and tables aremanufactured in batches of 50. It takes three hours to set up for abatch of chairs and two hours to set up for a batch of tables.Bombera Ltd uses activity-based costing and has classified alloverhead costs as shown in the table below:
Cost type
Budgeted variable
Budgeted fixed Cost driver/allocation baseManufacturing: Materials handling $342 840 $600000 Number of board metres used Set-up 97 000 300 740 Set-up hoursProcessing 789 250 5 900 000 Machine-hoursNonmanufacturing: Marketing 2 011 200 4 500 000Sales revenue Distribution 54 000 380 000 Number ofdeliveries
Delivery trucks transport units sold in delivery sizes of 500chairs or 500 tables.
Required For the year 2018:
5. Prepare the direct materials usage budget and the directmaterials purchases budget. 6. Use the direct materialsusage budget to find the budgeted allocation rate formaterials-handling costs. (2.5 marks) 7. Prepare the directmanufacturing labour cost budget. (1.5 marks) 8. Prepare themanufacturing overhead cost budget for materials handling, set-upand processing. (1.5 marks) 9. Prepare the budgeted unit cost offinished good (16.5 marks) and ending inventories budget. (4.5marks) 10. Prepare the cost of goods sold budget. 11.Prepare the non-manufacturing overhead costs budget for marketingand distribution. (1 mark) 12. Prepare a budgeted income statement(ignore income taxes). 13. Compare the budgeted unit costof a chair to its budgeted selling price. Why might Bombera Ltdcontinue to sell the chairs for only $70?
